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Russia's monetary authority has declared it is pursuing damages totaling $230 billion from the securities depository Euroclear. This move constitutes a clear warning by the Kremlin against plans to use immobilized Russian state funds to aid Ukraine.

The Substantial Demand

Based on reports in local news outlets, the central bank initiated a claim last week for roughly 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

EU leaders are set to decide later this week on a plan to leverage around €210 billion in immobilized Russian assets. This scheme involves providing Ukraine with a substantial loan to fund its military and economic stability.

Most of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Russian frozen financial reserves.

Dispute on Ownership

European Union officials have maintained that their proposal is on solid legal ground. Their position is based on the fact that title of the sovereign wealth remains with Russia, even though it was immobilized in EU countries following the full-scale military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as illegal appropriation. It has threatened retaliatory actions, including seizing European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

With statements interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe attack on property rights and the international reserves system created by the United States."

Euroclear refused to provide a statement on the new lawsuit. The institution has previously noted it is facing more than 100 lawsuits in Russian courts.

Enforcement Challenges

While judges in EU countries are unlikely to recognize rulings from Russian tribunals, analysts anticipate Moscow to pursue enforcement in nations with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets can be identified," stated a legal expert from an NSP law firm.

European Safeguards

European authorities said they are working on measures to deter other countries from aiding any Russian lawsuits against European entities. Additionally, they are designing safeguards to shield EU countries with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain unaffected.

Ukraine would solely be obligated to return the loan in the event that Russia consented to pay compensation for the immense damage inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for funding Ukraine. This involves common EU borrowing to fund a loan, using unused funds within the European budget.

This alternative move, nevertheless, demands unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it is not drawn from our public funds, which is also significant," she stated. "Furthermore, it sends a powerful signal that if you cause all this damage to another country, you must pay for the rebuilding."